He’s sticking to his guns, I’ll give him that. Krugman has already gone the route of defining the relevant (price) inflation measure as one that strips out energy and food, despite the obvious (and comic) problems with doing that.
Now he’s taken his Phillips Curve mindset to the next level:
US core inflation has ticked up slightly recently. What’s that about?
I’ve suspected that what we’re really seeing is the inadequacy of even core inflation as a way to purge transitory effects of volatile prices: the measure takes out purchases of food and energy, but it doesn’t take out indirect effects of raw material prices on costs. New research from Goldman Sachs (no link) seems to support that view: it finds that core inflation is getting a temporary bump from the prices of imported raw materials, and will probably subside if the commodity surge is in fact over.
This in turn suggests that policy should really be based on some kind of “supercore” inflation. Should this simply be wage growth? Adam Posen at the Bank of England has certainly gone well down this route, arguing that the relatively high rate of even core inflation in the UK reflects one-off factors and that stagnant wages show that there are few risks. And I totally agree with Posen about the UK policy issues.
Yet there are problems with a wage target — mainly, you don’t want to base policy on the notion that wage gains are always a bad thing. Maybe adding a trend productivity adjustment would do the trick. More systematic thoughts when I have time.
Anyway, the bottom line for now is that neither the Fed nor the ECB should be at all concerned about inflation.
Say what you will, that’s impressive.